Sembcorp Industries - Maybank Kim Eng 2015-10-30: Marine’s drag offsets Utilities’ drive

Sembcorp Industries - Maybank Kim Eng 2015-10-30: Marine’s drag offsets Utilities’ drive SEMBCORP INDUSTRIES LTD U96.SI 

Sembcorp Industries - Marine’s drag offsets Utilities’ drive 

  • 3Q15 missed due to weak Marine but Utilities in line. Cut FY15-17E EPS by 3-8%, mainly due to Marine. 
  • TPCIL losses expected given ramp-up phase. More material lift-off only in 2H16. 
  • SOTP TP cut from SGD3.67 to SGD3.53 on lower SMM TP. Maintain HOLD given sustainable 4.2% dividend yield. 

What’s New 

  • 3Q15 PATMI of SGD122.3m (-37.8% YoY, -45.3% QoQ) missed mainly due to the weak Marine performance (results note). 
  • Utilities was in line. Adjusting for one-off gains, 9M15 core PATMI of SGD415.7m (-25.8% YoY) formed 63/61% of our/consensus’ FY15E. Note that SCI will recognise another SGD350m gain from divestment of 40%- owned Australian JV, SembSita in 4Q15. The second 660MW TPCIL unit in India achieved COD in Sep 15, but overall operations continued to run losses of SGD12m in 3Q15 (SGD9m in 2Q15) due to higher start-up cost loading. 
  • SCI guides for full-year breakeven for TPCIL. 

What’s Our View 

  • While there was a spike in power spreads in July, this was due to unforeseen downtime of some generators and prices subsequently reverted back to 1Q & 2Q levels. 
  • 3Q15 Singapore Utilities net profit was down 50% YoY to SGD30.6m due to lower power prices. But this would have been higher if not for a SGD16m provision for doubtful debts for Jurong Aromatics Corp which is under receivership. 
  • We cut our FY15-17E EPS by 3-8% mainly due to SMM. SOTP TP consequently lowered from SGD3.67 to SGD3.53 as we imputed lower SMM TP of SGD1.75. 
  • Maintain HOLD given Marine’s concern while lift-off from Utilities’ overseas investments is only likely to come in 2H16. 
  • Support from 4.2% dividend yield with upside potential given recent divestments which will net the company SGD482m in cash.

Yeak Chee Keong CFA Maybank Kim Eng | 2015-10-30
Maybank Kim Eng Analyst Report HOLD Maintain HOLD 3.53 Down 3.67